Nand Lal Bhatia & Ors vs Kuldeep Kaul & Ors

Present: For Appellants - Mr. Rajiv Ranjan, Senior Advocate with Mr. Siddharth Yadav, Mr. Rakesh Ojha and Mr. Upinder Singh, Advocates.

For Respondents- Mr. A. S. Chandhiok, Senior Advocate with Mr. NPS Chawla, Mr. Sujoy Datta, Ms. Arveena Sharma and Ms. Sweta Kakkad, Advocates. JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

In these appeals, as common order dated 24th March, 2017

passed by the National Company Law Tribunal (hereinafter referred to

as the 'Tribunal'), Principal Bench, New Delhi is under challenge and

common question of law involved, they were heard together and are

being disposed of by this common judgment.

2. By the common impugned order, the Tribunal, Principal

Bench having noticed the submission made by parties with 'regard to

valuation report dated 8th February, 2017 filed pursuant to the order

passed by the erstwhile Company Law Board (now Tribunal) made

certain observations and directed as follows: -

"14. As a sequel to the above discussion the following

directions are passed: -

1) Respondent Bhatia group is directed to pay a sum of

Rupees One Crore to Kaul Group towards part

repayment of inter-corporate loan within 30 days

hereof, subject to the further direction of this Tribunal.

2) Respondents shall file objection to the valuation report

within 7 days thereafter with advance copy to

petitioners.

3) Petitioner shall file reply to the objection within 7 days

thereafter.

[2]

The next date of hearing is fixed on 15.05.2017 for

deliberation and final decision on the report of Auditor

and valuer M/s. S. C. Vasudeva and Co., Chartered

Accountants dated 8th February, 2017."

3. The brief facts of the case as pleaded by the appellant,

Nand Lal Bhatia and others, are as follows.

4. M/s Horizon Broadcast Electronics Private Limited

(HBEPL) was incorporated On 20.10.1999. 1st Respondent was given

the authority to manage the business and operations of the HBEPL and

HBE FZE and was also designated as 'Manager' for HBE FZE in the

License Certificate issued by the SAIF Zone Authority of Sharjah. UAE

on 17.04.2010. 1st Appellant was given the authority to manage and

control the business and operations of 3rd & 4th Appellant Companies

and was designated as 'Manager' for 3rd Appellant Company in the

License Certificate issued by the SAIF Zone Authority of Sharjah UAE

on20thJune, 2011.

5. According to the Appellant(s) in the month of December,

2014, 1st & 2nd Appellants discovered that the financial performance of

HBEPL for the period commencing from June 2014 was unusually

dismal. 1 & 2nd Appellants were shocked to discover that the 1st and

2nd Respondents had by fabricating a Board's resolution dated 12th

November, 2014, purportedly passed by the Board of Directors of

HBEPL, promoted a limited liability partnership in the name and style

[3} of HBLLP and had further promoted an affiliate entity by the name of

Horizon Electronics FZE in Sharjah UAE in February/March, 2015.

6. 1st & 2nd Appellants and 1st & 2nd Respondents agreed that

the HBE Group will be split with effect from 01.04.2015 with 1st & 2nd

Respondents retaining ownership and control of HBEPL and HBE FZE

and the Appellants retaining control of 3' & 4th Appellant Companies

and "Three D Integrated Solutions Limited" on istApril, 2015.

7. Further, according to the Appellants, 1st & 2nd Appellants

further discovered that pursuant to a systematic and well-orchestrated

scheme, 1st and 2nd Respondents had siphoned off the entire business

of HBEPL into their newly and fraudulently incorporated limited liability

partnership entity HBLLP and Horizon Electronics FZE. 1st & 2nd

Appellants instituted a Company Petition being CP No.38 of 2015 under

Sections 397, 398, 402, 403, 406, 235 and 237 of the Companies Act,

1956 before the erstwhile Company Law Board to restrain the 1st

Respondent & 2nd Respondents from siphoning off the business and

clients of HBEPL into HBPPL and Horizon Electronics FZE on 19th May,

2015.

8. The Company Law Board passed an order restraining 1st &

2nd Respondents from diverting the clients of HBEPL into HBLLP and

Horizon Electronics FZE on 17th July, 2015.

9. 1st and 2nd Respondents filed Company Petition

No.61(ND)/2015 under Sections 397, 398, 402, 403, 406, 235 and 237

of the Companies Act, 1956 before the Company Law Board on 7th

August, 2015.

[4]

10. On lith August, 2015, 1st & 2nd Appellants filed Company

Petition No.62(ND)/2015 under Sections 397, 398, 402, 403, 406, 235

and 237 of the Companies Act, 1956 alleging oppression and

mismanagement of 3rd & 4th Appellant Companies by the 1st & 2nd

Respondents before the Company Law Board. The Company Law Board

acknowledged and recorded the intention of an amicable settlement

between the parties with the consent of both the parties, appointed

M/s. S.C. Vasudeva and Co., Chartered Accountants to act as

independent auditor to audit and finalize the statement of accounts

with respect to the financial year 2014-2015 and determine the

valuatiOn of the assets for all the HBE Group of Companies on 13th

August, 2015.

11. One Siddharth Bhatia, son of 1st Appellant vide an e-mail

communicated to M/s. S.C. Vasudeva and Co. that 1st Respondent

wanted valuation of HBE Group Companies for last three years. This

mail was sent prior to the start of the valuation exercise on 1st

December, 2015. E-mail dated 1st December, 2015 was duly

acknowledged by M/s. S.C. Vasudeva and Co. vide another e-mail.

Regardless of which M/s. S.C. Vasudeva and Co. conducted valuation

for only one year only citing technical limitations.

12. Company Law Board passed order directing both parties to

file undertaking stating that each will maintain assets at least worth

INR 5 crores in one entity or collectively in their respective group

companies, till the setting off/payment of the interse claims between

the parties on 23rd March, 2015.

[5]

13. Audit report was submitted by M/s. S.C. Vasudeva and Co.

to the Tribunal on 1st September, 2016. Draft valuation report to be

submitted to Tribunal was circulated by M/s. S.C. Vasudeva and Co.

showing consolidated financial results of companies enumerating

results over 4 years on 13th December, 2016. Disregarding the email

from Siddharth Bhatia, M/s. S.C. Vasudeva and Co., filed the valuation

report containing material errors and showing consolidated financial

results of companies over one year only on .29th December, 2016.

14. M/s. S.C. Vasudeva and Co. recognised the error(s) and

filed a revised valuation report correcting the mistakes highlighted by

Appellants on 8th February, 2017. Appellants re-filed the said

objections, after making necessary administrative corrections on 21St

March, 2017. The Impugned order was passed by the Tribunal on 24th

March, 2017.

15. Learned counsel for the appellant assailed the impugned

order on technical grounds as noticed below:

16. According to appellants, in paragraph 10 of the Impugned

Order dated 24th March, 2017 (hereinafter "Impugned Order") passed

by the Tribunal the finding has been wrongly recorded that the

Appellants are requesting to make audit for 3 years (last line of the

paragraph). The primary objection/ prayer of the Appellants amongst

others is that as per the agreed terms valuation was to be conducted

for a period of 3 years covering FY 2012-2013,. 2013-2014 and 2014- 014-

2015. The audit for FY 2014-2015 was conducted by M/s Vasudeva &

Co. (hereinafter "Valuers") because it was not complete. (Previous years'

[6J audit was not directed because audits were already completed and

respective balance sheets were signed by both parties).

17. Further according to appellant in paragraph 9, last line of

the Impugned Order, the Tribunal has erred by imposing certain terms

to test the bona-fide of the Respondent/Appellant while agreeing that

the Appellants have the right to object to the valuation report dated

08.02.2017 filed by M/s S.0 Vasudeva & Co. (hereinafter "Valuation

report"). The bona-fide of the Appellants cannot be tested again and

again. In spite of the order dated 17th July, 2015, wherein by the interim

order the Tribunal recorded the finding in favour of the Appellants, and

against the 1st and 2nd Respondents. The 1St and 2nd Respondents have

indulged in diverting the business of the Horizon Broadcast Electronics

Private Ltd. ("HBEPL") to Horizon Broadcast LLP ("HBLLP") and Horizon

Electronics FZE and thus a restraint order was passed. Thereafter,

again the bona-fide was demonstrated by the Appellants by agreeing to

a consensus settlement which finds recorded the order of 13th August,

2015.

18. It was submitted that the Appellants again showed their

bona-fide to maintain their asset at least worth INR ,5 crores by giving

an undertaking in terms of the order dated 23rd March, 2016.

Therefore, enough security has been provided by the Appellants to the

Tribunal before the exercise of audit and valuation was undertaken.

Thus, at no stage the issue of providing further bona-fide additional

security by making a payment of INR 1 Crore arise even before the final

adjudication on the objection of the valuation report and the acceptance

[7] of the valuation report. It is only after the final valuation report is

accepted/ adjudicated the issue of adjustment and final liability of the

parties would be determined.

19. According to Appellants, if the valuation of three years i.e.

FY 2012-2013, 2013-2014 and 2014-2015 is undertaken based on the

audited balance sheets already on record then even after adjusting the

inter-corporate loans the Appellants would be entitled to 1.95 crores

from the Kaul Group (Respondents). Thus, INR 5.87 crores is not

admitted and the same will also be wiped out and overturned in favour

of the Bhatia Group (Appellants) after undertaking valuation for a

period of three years.

20. It was further contended that the direction in the interim

order for payment of INR 1 crore is not the conduct or critical operations

of the Kaul group companies. The operations and funds of HBEPL has

already been siphoned off to the new fraudulently created entities

HBLLP and Horizon Electronics FZE (which is the main allegation) by

the 1st and 2nd Respondents, which has been accepted in the order

dated 17th July, 2015 passed by the Tribunal. Whereas, on the contrary

the direction to pay INR 1 crore is only to test the bona-fide of the

Appellants - paragraph 9 last line of the impugned order only states "it

is felt to impose certain terms to test the bona-fide of the

Appellant", for consideration of its objections to the valuation report.

21. It was submitted that the impugned order has not been

passed on the basis of any interim application filed under section 242(4)

of the Companies Act, 2013.

[8]

22. Further, according to 'the Appellants the settlement

initiative was voluntary by the Appellants and without the assent of the

Appellants 'no such coercive directions can be passed by the Tribunal.

In any event, if the settlement between the parties fail then the parties

must argue before the Tribunal the main Company Petitions being CP

No.38 of 2015, CP No.61 of 2015 and CP No.62 of 2015 on merits.

23. In the aforesaid background learned counsel for the

appellants submitted that the direction passed by the Tribunal to pay

1 crore is not legal and valid and is not necessary at all to decide the

objections to the valuation report filed by the Appellants.

24. Respondents highlighted the facts and oppose the

submissions, the Tribunal having passed the interim order in the

interest of the Company.

25. From the record, we find that the Company Petitions under

Sections 397 and 398 read with Section 402 of the Companies Act, 1956

were filed. While appellants and respondents alleging oppression and

mismanagement of - same company by one or other. Allegations were

made by respondents against the appellants that they incorporated

Companies HBE AVIOSEC, LLP and were diverting business and

siphoning off funds therein, to the exclusion of respondents.

26. The appellants made allegation that the respondents had

incorporated Horizon Broad LLP and Horizon Broadcast FZE and had

diverted business and funds therein, to the exclusion of appellants.

[9]

27. Erstwhile Company Law Board passed a consent order on

13th August, 2015 covering all the Company Petitions. The said order

also took note of another group of companies "Three-D Integrated

Solutions Ltd." where parties had shareholding and also the entities

which both the appellants and respondents had incorporated to the

exclusion of the other. It was a composite order pertaining to all the

entities by way of consent order. Annexure A to the order dated 13th

August, 2015 lists all the Companies and the subsidiaries including the

four incorporated entities, where diversion were alleged by both the

sides. Annexure B is the list of Companies/ entities covered by order

dated 13th August, 2015.

28. The Tribunal took note of the averments made in the

Company Petitions filed by the appellants, especially paragraph 7.4 and

7.8 and put to the parties if they were still ready and willing to go ahead

with the agreement so pleaded therein. Both the parties affirmed the

same and accepted that in terms of the agreements agreed to between

them all incorporated entities carrying on business of 'aviation' are

being managed and would continue to be managed by the appellants

on transfer of the shareholding of the respondents. Other facts also

evident from the order dated 13th August, 2015.

29. After constitution of the Tribunal on 1St June, 2016, the

auditor M/s. S.C. Vasudeva & Company after circulating to the parties

and inviting comments, draft financial statement/audit report, filed

their audit report before the Tribunal on 1St September, 2016. Neither

the appellants nor the respondents filed any objection to the audit

[10] report dated 1st September, 2016. The Tribunal taken into

consideration order dated 13th August, 2015 and passed order dated

10th November, 2016 directing the appellants to pay certain percentage

of admitted liability unto the respondents' entities. As the said order

was not complied with by the appellants, on 24th November, 2016, the.

Tribunal observed that the primary object of the aforesaid order was to

permit the business of the companies belonging to both the groups run

smoothly. In compliance with the order dated 24th November, 2014,

M/s. S.C. Vasudeva & Co. by letter dated 13th December, 2.016

reiterated and reaffirmed the amount of Rs. 9,31,67,979/- besides US$

4,30,564/- was payable by the appellants entities to the respondents'

entities.

30. The Tribunal, provided opportunities to the parties to arrive

at an agreed amount. However, as the parties failed to make a

settlement about payment of agreed amount, the Tribunal passed the

impugned order dated 24th March, 2017 and informed that the said

order has been modified by order dated 24th April, 2017.

31. We are not deciding the question of admitted liability of the

appellant, as were suggested by the learned counsel for the

respondents. However, we find that the case is pending since long and

has not reached finality and taking into consideration earlier order

passed by the erstwhile Company Law Board in the said very petitions,

the interim arrangement and order has been made.

32. As per Section 422 of Companies Act, 2013, the Tribunal

was supposed to dispose of the appeal within 90 days. However,

[11] because of non-agreement by the appellants or the respondents, in

spite of valuation report submitted, it is more than one year has passed

the Tribunal could not pass the final order.

33. As the amount ordered for payment by the Tribunal is

much less than the actual valuation report, which may be varied, we

are of the view that instead of interfering, with the interim order and

arrangement, the party should be directed to cooperate with the I

Tribunal to ensure final disposal of the Company Petitions.

34. For the reasons aforesaid, we are not inclined to interfere

with the impugned order dated 24th March, 2017 and remit the case to

the Tribunal, Principal Bench, New Delhi to decide the case after taking

into consideration the valuation reports and other facts as brought on

record and in accordance with law.

35. All the appeals, thereby stand disposed of with the

aforesaid observations and directions. However, in the facts and

circumstances of the case, there shall be no order as to cost.

[Balvinder Singh] [Justice S.J. Mukhopadhaya Member (Technical) Chairperson

NEW DELHI 21st July, 2017

Ins/

[12]